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EU Gives Green Light to Trigger $4 Billion Tariff Strike on U.S.

Jonathan Stearns
·4 min read

(Bloomberg) -- Supply Lines is a daily newsletter that tracks Covid-19’s impact on trade. Sign up here, and subscribe to our Covid-19 podcast for the latest news and analysis on the pandemic.

The European Union will impose tariffs on $4 billion of U.S. goods starting Tuesday in a tit-for-tat escalation of a transatlantic fight over illegal aid to aircraft manufacturers Boeing Co. and Airbus SE.

EU trade chief Valdis Dombrovskis on Monday expressed a preference to negotiate a settlement, saying the bloc would drop its duties if the U.S. removes levies it imposed in 2019 on $7.5 billion of EU products. Both sets of import taxes are part of a dispute that began 16 years ago.

The EU tariffs will target various Boeing models, which will face a 15% duty, as well as other goods ranging from spirits and nuts to tractors and video games, which will be subject to a 25% levy. The move comes at an awkward moment for the EU, which is contending with a surge of Covid-19 cases and its worst recession.

“We call on the U.S. to agree that both sides drop existing countermeasures with immediate effect, so that we can quickly put this issue behind us,” Dombrovskis told reporters after a meeting of EU trade ministers. “Removing these tariffs would represent a strong win-win for both sides.”

The imminent tariff strike is meant to give the EU more leverage in pushing for a truce that has been elusive with U.S. President Donald Trump, who will remain in office until Jan. 20. The move may make it easier for President-Elect Joe Biden to embrace longstanding European calls to settle the transatlantic dispute over aircraft aid at the negotiating table.

For the past 13 months, the EU has faced U.S. tariffs on $7.5 billion of European goods after Washington won a World Trade Organization case against market-distorting aid to Airbus. Last month, in a parallel lawsuit, the EU received final WTO permission to hit $4 billion of American products with duties over unfair subsidies to Boeing.

The U.S. is “disappointed” with the EU’s action, Trade Representative Robert Lighthizer said.

“The alleged subsidy to Boeing was repealed seven months ago,” he said in a statement. “The EU has long proclaimed its commitment to following WTO rules, but today’s announcement shows they do so only when convenient to them.”

The WTO damages award in the Boeing case came months later than the EU had hoped, complicating its deliberations as a result of the proximity of the Nov. 3 U.S. election. The timing of the planned tariffs is a political compromise by coming after the U.S. ballot and before Trump leaves the White House.

Boeing said it was disappointed and surprised by the European move.

“We hope that Airbus and the EU will take meaningful action to resolve this trade dispute,” the Chicago-based company said in an emailed statement.

German Economy Minister Peter Altmaier echoed Dombrovskis in urging the U.S. to enter into talks on a settlement of the aircraft-aid row.

“We remain ready at any time to put a negotiated solution in place,” Altmaier told reporters.

Trump Threat

Trump has pledged to counter-retaliate and “strike much harder” if the EU imposes its duties.

To date, the U.S. has refrained from applying the maximum tariff level in the $7.5 billion damages award from the WTO last year. That ruling led the Trump administration to impose 15% tariffs on Airbus aircraft and 25% levies on an array of European exports including French wine, Scotch whisky and Spanish olives.

Washington could raise those import taxes to 100%, which for many European products would effectively block their entry into the U.S. marketplace.

With American alcoholic beverages including rum on the EU target list, a coalition of trade associations representing U.S. and European spirits makers called on both sides to suspend their tariffs and get down to talks.

The bloc’s measures will “further damage the once-booming transatlantic drinks trade,” the alliance said in an emailed statement.

(Updates to add comment from U.S. Trade Representative in seventh paragraph.)

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